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Do Informal Referrals Lead to Better Matches? Evidence from a Firm's Employee Referral System

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Author Info

  • Brown, Meta

    ()
    (Federal Reserve Bank of New York)

  • Setren, Elizabeth

    ()
    (MIT)

  • Topa, Giorgio

    ()
    (Federal Reserve Bank of New York)

Abstract

Using a new firm-level dataset that includes explicit information on referrals by current employees, we investigate the hiring process and the relationships among referrals, match quality, wage trajectories and turnover for a single U.S. corporation, and test various predictions of theoretical models of labor market referrals. We find that referred candidates are more likely to be hired; experience an initial wage advantage which dissipates over time; and have longer tenure in the firm. Further, the variances of the referred and non-referred wage distributions converge over time. The observed referral effects appear to be stronger at lower skill levels. The data also permit analysis of the role of referrer-referee pair characteristics.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 8175.

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Length: 57 pages
Date of creation: May 2014
Date of revision:
Handle: RePEc:iza:izadps:dp8175

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Keywords: referrals; human resources; turnover; wage trajectory;

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References

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  1. Giorgio Topa & Stephen Ross & Patrick Bayer, 2005. "Place of Work and Place of Residence: Informal Hiring Networks and Labor Market Outcomes," Working Papers 05-23, Center for Economic Studies, U.S. Census Bureau.
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  5. Linda Datcher Loury, 2006. "Some Contacts Are More Equal than Others: Informal Networks, Job Tenure, and Wages," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 24(2), pages 299-318, April.
  6. Manolis Galenianos, 2013. "Learning About Match Quality and the Use of Referrals," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(4), pages 668-690, October.
  7. Montgomery, James D, 1991. "Social Networks and Labor-Market Outcomes: Toward an Economic Analysis," American Economic Review, American Economic Association, American Economic Association, vol. 81(5), pages 1407-18, December.
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  9. Harry J. Holzer, 1986. "Search Method Use by Unemployed Youth," NBER Working Papers 1859, National Bureau of Economic Research, Inc.
  10. Lori Beaman & Jeremy Magruder, 2012. "Who Gets the Job Referral? Evidence from a Social Networks Experiment," American Economic Review, American Economic Association, American Economic Association, vol. 102(7), pages 3574-93, December.
  11. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, Econometric Society, vol. 58(4), pages 757-82, July.
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  14. Manishi Prasad & Peter Wahlqvist & Rich Shikiar & Ya-Chen Tina Shih, 2004. "A," PharmacoEconomics, Springer Healthcare | Adis, Springer Healthcare | Adis, vol. 22(4), pages 225-244.
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  16. Holzer, Harry J, 1987. "Informal Job Search and Black Youth Unemployment," American Economic Review, American Economic Association, American Economic Association, vol. 77(3), pages 446-52, June.
  17. Simon, Curtis J & Warner, John T, 1992. "Matchmaker, Matchmaker: The Effect of Old Boy Networks on Job Match Quality, Earnings, and Tenure," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 10(3), pages 306-30, July.
  18. Michele Pellizzari, 2010. "Do Friends and Relatives Really Help in Getting a Good Job?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 63(3), pages 494-510, April.
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  20. Hellerstein, Judith K. & McInerney, Melissa & Neumark, David, 2008. "Measuring the Importance of Labor Market Networks," IZA Discussion Papers 3750, Institute for the Study of Labor (IZA).
  21. Frederiksen, Anders & Lange, Fabian & Kriechel, Ben, 2012. "Subjective Performance Evaluations and Employee Careers," IZA Discussion Papers 6373, Institute for the Study of Labor (IZA).
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Cited by:
  1. Hensvik, Lena & Nordström Skans, Oskar, 2013. "Networks and youth labor market entry," Working Paper Series, IFAU - Institute for Evaluation of Labour Market and Education Policy 2013:23, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  2. Judith K. Hellerstein & Mark J. Kutzbach & David Neumark, 2012. "Do Labor Market Networks Have An Important Spatial Dimension?," Working Papers 12-30, Center for Economic Studies, U.S. Census Bureau.

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